Cuban Property Reforms
Eduardo Moisés Peñalver September 6, 2011 - 1:29pm
As part of a raft of recent economic reforms, including a limited liberalization of self-employment, the Raul Castro government has recently reiterated its plans to introduce a market for housing at the end of this year. The reforms will permit Cuban homeowners to buy and sell their residential properties for the first time in decades. Discussions of the planned housing reforms have often misstated the existing law and have failed to note that the Cuban government has taken similar steps before, with disastrous results. That earlier experience suggests that, without a more ambitious transformation of the Cuban economy, these admittedly significant changes to Cuban housing law will yield the same disappointing consequences this time around.Although commentators (including arecent article in the New York Times) often mistakenly claim that all property in Cuba is owned by the state, Cuban law has long permitted private homeownership.
The nationalizations of property by Fidel Castros government after the 1959 revolution focused on agricultural, industrial, and commercial properties. Apart from confiscating the homes of those who left the island, the Cuban government did not undertake a wholesale collectivization of the countrys housing stock. Instead, from the beginning, its policy has been to widen the opportunities for private homeownership. To that end, it expropriated rental properties in order to transfer them to tenants, who purchased them from the state at low prices with state-subsidized credit. The Cuban government has also allowed residents of state-owned housing to purchase their units from the state at fixed (and relatively modest) prices. Absentee ownership remains illegal, but Cubans are permitted to own a single vacation property. By the late 1960s, virtually all commercial activity in Cuba was firmly in state hands, but private homeownership rates have remained consistently high, reaching nearly 90% in the late 1980s.In some respects, homeownership in Cuba resembles homeownership anywhere else. Cubans enjoy a great deal of tenure security. They exercise control over when and how to maintain their homes. They can, within limits, pass their property down to their children when they die. The most significant difference is that Cubans are not permitted to buy or sell their homes.Cubas blanket prohibition on sales leads to enormous problems. Cubans get married and divorced, have children, and occasionally need to relocate in order to live nearer to work or school. When these things happen, the inability to sell their homes or buy a new one makes it virtually impossible for Cubans to move into a house that matches their needs. As you might expect, the difficulty of sharing a house with, say, an ex-spouse and her new husband has inspired no small amount of dark Cuban humor.The state allows homeowners to swap their houses with one another in a heavily regulated barter transaction known as a permuta. In order to get a home that suits them, however, Cubans must sometimes put together intricate three and four-way transactions that resemble complex baseball trades. The states role overseeing the permuta process has predictably stimulated a great deal of corruption.The difficulty of arranging permutas has been exacerbated by Cubas severe housing shortage. Over the years, the Cuban government has tried solving this problem in the usual socialist ways writing five-year plans, using state enterprises to build massive, soul-crushing, soviet-style housing projects, and mobilizing small groups of people into militant microbrigades to construct housing for themselves in their spare time. None of these strategies has allowed Cuba to come close to meeting the demand for housing on the island. The cash-strapped government has never been able to dedicate enough resources to overcome the backlog of demand, and its job has been made more difficult by the inefficiencies of its state-run construction industry. The result has been severe and persistent overcrowding. Although genuine homelessness is very rare and Cuban cities lack the massive shanty-towns that skirt most Latin American cities, it is extremely common for Cubans to live in dangerously overcrowded and dilapidated conditions.Contrary to some news reports, the housing reforms planned for the end of this year are not the first time the communist government on the island has experimented with allowing the sale of residential property. In the mid-1980s, the government briefly permitted the sale of homes. The immediate result was sky-rocketing prices. The government blamed speculators, but the rapidly rising prices were a fairly predictable market response to a severe housing shortage. Within a few short years, the government slammed the door shut again. (Of course, illegal sales have continued to occur through corruption of the permuta process.)The outcome of the 1980s experiment illustrates why Raul Castros housing reforms are likely to fail this time around as well. No matter how heavily it regulates the buying and selling of property to prevent speculation, the government cannot repeal the law of supply and demand. Given a housing shortage that is now far worse than it was in the 1980s, housing prices are certain to shoot through the roof.What the Cuban government refuses to acknowledge is that Cubas housing problem is not really a housing problem. Its a socialism problem. In a market economy, rising housing prices stimulate activity among homebuilders competing with one another to meet the demand as efficiently as possible. High home prices in Cuba will not magically generate housing production where construction materials are almost impossible to come by and where the construction of new housing remains largely in the hands of inefficient state enterprises. Instead, Cuba is likely to find that the most immediate consequence of the introduction of a housing market will be to move the best properties into the hands of those fortunate Cubans lucky enough to have access to hard currency, either in their jobs or through remissions from abroad.This is not to say that the Raul Castro government is wrong to liberalize housing. Allowing home sales will add fluidity and mobility to its crippled housing system. That is a change for the better, at least relative to the low baseline of its current system. But Cubas housing problem will only be genuinely solved when the government goes much farther and liberalizes the other sectors of the Cuban economy as well.
About the Author
Eduardo Moisés Peñalver is the John P. Wilson Professor of Law at the University of Chicago Law School. He is the author of numerous books and articles on the subjects of property and land use law.